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How to Navigate Expensive Debt

Tips to navigate a more expensive world of debt when the cost of borrowing rises and “affordable debt” tanks

Tips to navigate a more expensive world of debt when the cost of borrowing rises and “affordable debt” tanks

Before we can understand how to navigate expensive debt, we have to lay down the basic tenets of debt. Or, in other words, the key pieces to the borrowing puzzle.

Key variables in debt and borrowing

  • Federal rate: The Federal Funds rate is the rate at which banks charge one another interest for their overnight lending—something they do to meet reserve requirements, and subsequently impacts the entire financial market. From late 2008 through mid-2017, this rate sat below 1%, only trickling up to a 2.4% crest in 2019 and falling back to 0% during the pandemic (2020-2022). As of early 2023, the new, historic average is 5.42%.

  • The prime rate: Also known as the Federal Funds rate plus 3%, the prime rate sets the benchmark for all debt across the market. Because this rate is preceded by the Federal Funds rate, it tracks right along with it, and historically, has been much higher than in recent years. US banks averaged a prime rate of 6.49% from 1950 to 2022.

  • Mortgage rates: The costliest of debts, mortgages usually bear the brunt of the Fed and its interest rate swings. However, mortgage rates have remained unsustainably low, not having topped 5% since 2010—that is, until 2022. Historically, the average 30-year fixed-rate mortgage has clocked in at 7.76%, and even with the rate hikes of 2022, we’re still not back to those levels.

How the economy affects your wallet

As a result of risky economic moves, such as the pandemic stimulus and barely-there interest rates, Americans can feel the pinch of inflation, unaffordable debt, and concerns for the future.

In 2022, for example, the Federal Reserve enacted record rate hikes, raising the cost of debt across the board in an already expensive environment.

Planning for changes to debt and borrowing costs

  • Investing: The rising cost of debt can take a toll on the market, creating a volatile situation. Investors watch for Fed news like hawks (no pun intended) and react negatively to news of more rate hikes. The markets will take dips and dives, but history is on our side. The best time to invest is now, later, and forever, and we wouldn’t suggest taking your foot off the pedal just because of the uncertainty. (That’s why we’re big fans of diversification!)

  • Debt overall: Handle debt of all kinds with prudence and make shrewd decisions. Don’t take on credit card debt if you don’t have to, use them for their benefits, and make timely payments to avoid paying higher interest payments. Take a look at your student loans and see if you’re eligible for forgiveness or restructuring them with a new lender for a better rate.

  • Homeownership: We’re big fans of equity. When home prices cool, it’s more important than ever to keep paying extra and racking up that equity if you can.


Debt may be a part of life, but it doesn’t have to take over it!

Sure, debt management requires care, planning, and due diligence. Pop into the Pocketnest app and get working at your Debt Elimination Plan. It only takes about 3 minutes and you’ll set yourself up for success. Let’s do this!

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